tv Power Lunch CNBC September 16, 2009 12:00pm-2:00pm EDT
this week, this month and also now on a year to date basis, ge goes positive again. they'll huddle up with analysts tomorrow in new york. back to you. thanks so much. that is it for "the call." >> i will see you tonight on the "kudlow report." "power lunch" is up next. yeah, welcome to "power lunch." i'm sue herera. bill griffeth is off today which is why steve liesman is here. stocks trying for a third session of gains on the backs of positive economic data today. the dow crossing the 9700 mark. matt nesto talking about our
parent company, ge, leading the way today. we also have a number of big caps at 52-week highs. >> and i am steve liesman. as stocks hit new highs, check this out. what happened to that scary september? i hate to say that, but many thought it was going to be a really scary month and how should investors be involved? our "power lunch" task force is waiting in the wings. >> thank you, steve. it's the article everyone is talking about. james stewart, and we believe this time it will happen today. he's going to join us to talk about his cover story in the latest "new yorker." it is a fantastic read. he got preempted by the president yesterday, so we got him back today. i'm diana olick in washington. time is running out on the first time home buyer's tax credit. how will that affect us?
we'll find out in one hour. i'm rebecca jarvis in midtown manhattan. we're talking exclusively with some of the deal makers here in the next hour. i'm phil lebeau in frankfurt, germany. the ceo's comments on how surprised he was when he took over the company and the state of chrysler. phil, thank you. the federal reserve, we are reporting is involved in a broad review of commercial real estate exposures at the nation's largest regional bank, which is the result of concern, but part of what they are calling and we have called on this show, quote, the new normal for how the fed is going to supervise banks. they say the fed is quote, getting granular. the construction loans, thought
to be the worst versus multifamily and regionally. the effort began after the stress tests this year. but it recently ramped up in intensity and mostly involved what fed sources called horizontal review. what you've got to know about. you look at the lost rates in concentrations of similar assets in different banks. this is how fed initials say they're going to be doing normal ews of banks. the government hasn't decided whether to run more formal stress tests. commercial real estate's hung on the bank system for a long time. efforts to quantify the danger could cut both ways. we know right now is that there is a very broad-based review across the regional banks because the 19 --
>> why wouldn't you call this the stress test? this sounds like a stress test as well. >> everybody i talk to in government is very hyper about using this term. they feel it is a very formal thing that involves an army of people across different agencies that gets together, and then puts out a list. there's going to be no list. it's a formal process. they're gathering and aggregating data. they want to know how bad it is, but then need to make a decision is it better to deal with this bank by bank, or to make it public. the bears say, well, wait a second, you ain't seen nothing yet. remember what the stress tests did. they made people more comfortable with where the risks were. >> what's the downside of doing a stress test on the commercial
real estate market? >> i don't know the answer to that. there may be no downside. we've gotten wind of just this informational gathering process which they're telling us is the new normal. >> exactly. let's talk about the market action now because it is a positive day on economic data that is pushing stocks higher. oil has been a little lower, although it's starting to turn a bit. gold though is up about 13 bucks. bob pisani kicks it off at the new york stock exchange. >> highs for the day and 11-month highs. i want to kick off with what i think is the most important of the day. ibm. the other day, i mentioned it was approaching 120. if it got there, this would be a new high for the year, if it closes here. it hit 120 about 15 minutes ago. the minute it hit, the volume
picked up dramatically, so people are playing technicals very, very carefully. that's what happened to our parent company, general electric. hit 115, all of a sudden, on monday, boom. volume moves up, stock's been moving up ever since. there is an analyst meeting tomorrow. also, remember, ge is dramatically underperformed the s&p 500. down 33% in the last year. s&p only down 15%. that is now ending at the global markets improve. tradertalk.cnbc.com. >> we have one that i'm leading with that isn't quite near it and i want to take you to amazon.com. if you look at it, they had an upgrade of bank of america to a 103 price target. didn't have much of a dip in
march. up at 93 in july and they're heading back that way. big cap movers today, dell, apple. yahoo! nearly 3% and google, e 2.1. ebay has been lagging. it's turned and. oracle down. let's get to sharon. >> oil rally we're seeing sealed like it was going to be
a bit tentative, but now, we're near the highs of the session. traders are trying to digest reports we got today that showed a big drawdown in crude supplies. we saw builds in the products and that is up 25% from where we were just a year ago in terms of supply has those levels now at a 26-year high. and that is putting some pressure in capping a little bit some say, the rally that is
potentially ready to ensue in the oil markets. also got to take a look at gold because it was about $10 shy of that all-time high this morning. kind of plateaued at this level. about 11 or so dollars higher on the session, but still pushing
above that $1,000 mark. >> and ford, puget sound, delta airlines, what do you have in common? they're all issues securities. in the case of puget sound, that's the build america program. yesterday, we had over 20 billion just in investment grade, so supply outside the u.s. has been huge. yesterday's big name was citi. yields are up more than tens. why? there were some stories written earlier assuming things about
next week's fed meeting. the euro dollar would have sold off more aggressively. i have a couple of words for that. cash for clunkers. back to you. >> thanks so much. today, extremely significant for the markets for american businesses and all americans because today is the day that max baucus is set to unveil his committee's version of a health care reform bill. the reason this version is so important, if anything is likely to get through the house, this is going to be the one. this is going to mandate coverage which means everybody will have to buy health insurance. it's going to cost roughly 856 billion. they're going to put fees on businesses. no, no. talk about costs. $2 billion for the pharma
industry. the health insurance industry is going to have to pay 6 billion and then they're going to tax gold plated health insurance. >> there's a lot of discussion on the hill and we will bring you that news conference when it occurs. but a member of the so-called gang of six says he cannot support this piece of legislation which means that the three republicans who have been working on this -- >> even though there's no public option in this. >> right. olympia snowe has not issued a statement. he hasn't formerly come out with a statement. >> this is really interesting. >> 12:45. straight ahead though, what happened to the scary september so many predicted? volatility is low. what do you do know? >> it's only the 16th of september, but -- >> all right.
also ahead, warren buffett speaking with cnbc about the financial crisis one year later. we'll tell you what he told us about the markets and economy. plus, the senate finance committee's chairman speaks on health care. and then get ready for the "fast money halftime report." you are watching "power lunch" on cnbc. um bill--
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despite the fears about september, it hasn't looked so scary. industrials down, 97.60. look at the vix. it started to peak up and everybody starting making a lot of hay about that. that was the fear that september was going to be as scary as it is historically. and we're going to show you a one-year here as well. when we talk about a 22, it's basically a 52-week low. we're far from the 80s of the volatility index. we're well away from there and september so far, sue, seems to be okay. >> knock on wood. we're going the talk about that.
20 s&p 500 stocks hit new 52-week highs. among them, google, goldman sachs. why are so many large caps hitting new highs and what happened to that scary september? our task force joins us now. welcome. great to have you with us. carl, i'll start with you. we are halfway through the month, but everybody did expect this would be a very scary september. why is it not? >> usually, when everybody is looking for something, number two, the predominance of economic data has improved and that has gained confidence. >> simon, what do you think? >> i just want to check that we're not really missing a trick
here. the fact remains that central banks -- pumping massive amounts of liquidity, we've got interest rating nerly at zero here. that's fascinating for me. >> you have to ask that this morning, the ten-year was yielding 3.3. i don't understand how the stock market rallies, but the ten-year stays so low in yield. we always ask, who's right, the credit market or stock market. >> before you answer that question, that the real yield on the ten-year is actually very high. >> great point. >> a 2.5% deflation on the top line even if i use 1.4 negative year over year. what you end up with is, well, what is that. almost 5%. >> i love not having a reason to
worry about a 3.3%. >> that to me speaks of two very different species of investor out there that cannot mate. these guys cannot see anything eye to eye in terms of i'm okay lend l the government money at whatever the real yield is. and the other guys are like, it's got to be inflation, a disaster. >> so how do you invest in that environment? >> to simon and steve's point, the economy is still on life support. there's a massive amount of debt out there. so far, u.s. government is showing the ability to borrow at very favoritable rates. whether that can continue is a question. the worse it gets, if we have a
sudden surge in long-term borrowing, the worse it gets, the worse it gets. right now, we're climbing a, the wall of worry is turning into a wall of hope for stocks and that can turn into a wall of false expectations. >> to simon's point, you're right, it is life support, but at 9700. we're not at 14,000. we're not pushing all-time level pes. >> if you're pumping so much liquidity in, it has to go somewhere. >> but the fed and all the central banks of the world are going to retract. >> at the same time as private money flows right back in. >> this is the case in point.
>> he doesn't get that american -- >> here's what happened to chrysler. >> i thought he was australian. >> when the cash for clunkers was withdrawn, look what's happened to chrysler sales. >> true. >> down 19%. >> right. >> as you start taking this artificial life support away, what is the reality out there? what is the state of the u.s. consumer? we have no idea. >> one good idea before we go. actionable ip investment idea. >> companies out of the mobile, wireless internet around the world all networked together. cisco, qualcom. >> what might happen is some of the retail investors who have been sitting on the sidelines
with all that cash, would come in just at the time -- >> the point was made last night on air that a lot of people who wanted to short the market are now going long. there's a huge, pent up demand. >> thank you all. quick break and coming up, mr. buffett one year later. the world's most successful investor looks back at the meltdown. as we go to break, let's check on the shares. they're trading higher. way down from the highs earlier of the year. gecko: uh, you wanted to see me sir?
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women summit. it's not all women who are there. billionaire investor, warren buffett, is there and becky quick caught up with him to talk about market and reform. take a look at what he has to say about the economy today and the health of the housing. >> we're certainly through the worst on residential real estate and the reason is, we're building a lot fewer houses. that solves itself over time. not over a day or week, but it solves itself over a week. we're going to have usual losses in credit cards and real estate, but we're a lot better off than a year ago. some of the assets have been flushed through. there's been capital raised. >> feel that way, michelle? >> i feel it's better. don't you? compared to where we were a year ago?
i mean, the bar is low. >> it's one that is not really hard to -- hard to understand, which is we are not at a point where the next round of losses, which are inevitable. they're going to flow from the joblessness, that that doesn't cause a new panic. can we take what's -- can the normal healing process of a recession and defaults and taking losses and declines in stock markets, can that work through the loss of the system. >> one of the biggest shareholders in kraft, becky spoke with him about that. >> kraft has got -- anytime you're in a takeover, spirits run high on all of that, but kraft has a disadvantage of using a disadvantaged stock. if part of your kucurrency is worth more and you're paying
full for yours, it makes it a tough gain. it's a full price. >> it's fascinating that deals are back on the table. >> i think that's the overall macro headline. >> we're seeing deals come back. they may not be as smooth as they were, not as much debt, but at least deals are being negotiated. >> like actually, they may actually -- and investment banks can get back to getting advice. >> if you don't hit the metric, you're going to have to pay my money back. >> that's how we should have known it was going down is that risk spreaded came on top of each other. your 500 credit rating as it was, just a little more expensive than sue with a 700. >> absolutely. >> if not better.
speaking of the consumer and high profile names, martha stewart, who of course is a home making guru, she was on "squawk box" earlier today. >> the consumer's going to come back. takes a while because they've gotten, they learned what they can live without, right? and now, they're going to start coming back. >> and that, i think, is one of the key points because everybody we talked to has been asking if and when the consumer comes back, what kind of consumer will it be. are the changes we're seeing now, whether it's because of the lack of credit, whether they've lost their jobs, life is fundamentally different, but will they go back to the old ways once this is over. >> let's hope not. i don't want to be sitting here wondering what spending's going to be next month from a consumer
who is indebted 30% of his or her income. i don't want to do that. i think consumer debt is fine. it's been one of the great innovations out there, but you mean old ways. back to maxing out the credit cards. you know what, it's good if i go back there. i thought you were going to talk about martha stewart trashing k-mart. >> last time she was here, she defended k-mart. >> my goods aren't available -- >> she's winding down the line at k-mart. anyhow. the senate finance chairman speaks on health care in just a few minutes. his bill makes it mandatory for all americans to buy health insurance. is that the right way to go? and coming up, get ready for the "fast money halftime
report." matt nesto. >> that's right. i'm in the house today. we're going to be tackling this trend in the market. can it last? we'll be saying it about gold, ge and the broader markets. also, this recent rally in retail. all that and more coming up, but "power lunch" is right back after this. i've been growing algae for 35 years. most people try to get rid of algae, and we're trying to grow it. the algae are very beautiful. they come in blue or red, golden, green. algae could be converted into biofuels... that we could someday run our cars on. in using algae to form biofuels, we're not competing with the food supply. and they absorb co2, so they help solve the greenhouse problem, as well. we're making a big commitment to finding out... just how much algae can help to meet... the fuel demands of the world.
welcome back. we're almost halfway through the tading day. stocks higher right now, trying for a third straight session of gains. at petroleum shares at a two-week high. the company says it's discovered a new oil frontier. amazon trading higher. getting upgraded to a buy at bank of america. senator max baucus unveiling a landmark $856 billion health care bill. it calls for mandatory coverage. all americans will have to buy health insurance or pay a fine. is this the right move? squaring off are our democratic and republican strategists.
you both get 20 seconds to make your case. steve, you think this is good. why? >> there are three things it needs to do to be effective. it's got to provide stability to the people who have health insurance already and all these bills do that. the second is it needs to give an opportunity to those who don't have health insurance to buy it at an affordable rate. and third, it has to do something to bring costs under control. the only way you can do the third thing is by getting everybody in the system. >> i gave you five seconds extra. trent, why don't you like it? >> steve's last point has been obliterated by the massachusetts example, which is required everybody to buy health insurance. costs have gone up there. barack obama said it best last year during the campaign. he said it was wrong to force the uninsured to buy. it is going to increase costs for people, get the government involved -- >> you know, bill, trent, that
in this bill, there's going to be subsidies for the poor to be able to buy it. >> there will be that. >> you and i sit on the same side of the aisle and if we could start our own free market utopia, we would, but the health industry has agreed that they are no longer to cut people if they have a preexisting condition. that means i will drop my health care coverage until i had a condition and then i would go buy it. how would you prevent that. >> by putting the law in place which denies the insurance plans from doing that. an individual mandate isn't going to help things. look at california. they require people to buy car insurance. there are more people in california with health insurance than car insurance. it doesn't control costs and gets the government involved in described what is called add quaut health insurance.
it's going to add another out of pocket cost to them in terms of a very important time in their life. >> you know the criticism of this, is that it penalizes the young, the healthy and they're going to be paying the costs of the elderly, the sickest people in america. >> good drivers have to have car insurance as well as bad drivers and having everybody in the system is what lowers the system is what makes it more affordable. trent mentioned massachusetts. the cost of health insurance is going up there just like it is everybody where else. the 3% who are not insured tend to be the young and healthy and the ones that can bring rates down. >> you expected this trade-off. you said, oh, yeah, the costs have gone up, but everybody's covered. that goes contrary to what the mission is here besides
universal coverage. >> it hasn't been in effect very long. one of the things that lowers costs is electronic medical records and treating chronic disease so you're not paying 75% of health care costs. >> trent, the last ten seconds and i mean ten. >> again, it's just a bad idea. barack obama's right to oppose it when he was a candidate. he flip-flopped. like saying i promised everybody a flat screen tv and then go out and buy one after you get elected. i think everybody should have a flat screen tv. >> we can all agree on that. >> all right. where would you go -- the free market utopia? >> some place warm. >> i'd love to come. speaking very frankly about
the state of chrysler. phil lebeau will have more. also, how about some new, 52-week highs? they keep coming. we're back in a minute. first in business worldwide. you know why i sell tools? tools are uncomplicated? nothing complicated about a pair of 10 inch hose clamp pliers. you know what's complicated? shipping. shipping's complicated. not really. with priority mail flat rate boxes from the postal service shipping is easy. if it fits, it ships anywhere in the country for a low flat rate. that's not complicated. come on. how about...a handshake. alright. priority mail flat rate boxes only from the postal service. a simpler way to ship.
the ceo of fiat speaking frankly about chrysler. phil lebeau spoke with him and he joins us with more on that conversation. hi, phil. >> hi, sue. candid comments from sergio marchionne. he's been in charge for three months, hasn't said a lot about what he found when he first moved into the offices in auburn hills, but today, when i asked him the biggest surprise taking over the company, here's what he had to say. >> there was a whole pile of stuff we saw when we came in that we were not expecting. i think that probably the single largest surprise to us was how little had happened in the last 24 months to get this sort of machine competitive.
>> well, to make it more competitive, they're coming up with a five-year turn around plan. they're going to be presenting that by the end of november. right now, chrysler is number five in the u.s., just 9% market share. but sergio marchionne is confident despite the problems he's found with this company, that chrysler has the tools and talent to turn things arn. >> i have most of the tools and talent that i need to get this done. we're going to sup lement the team, but it's there. people should not sell short the american auto motive industry. it built this business. it will come back. >> for more on his comments to me over here at the auto show, check out the blog. sue, sergio marchionne is very straightforward when you ask him a question.
if he thinks things are messed up, he'll tell you exactly how it is. he believes chrysler can be fixed, but boy, i think they found more than what they bargained for. >> is that a lack of due diligence on fiat's part? >> i asked the people in the industry who have consulted with that, not a lack of due diligen diligence. we're minutes away from the release of new data on the housing sector. plus, we're going to go to the big private equity conference going on in manhattan. up next, the "fast money halftime report."
welcome to "fast money halftime report." we're getting to the heart of the action today. the sellers are having a tough time. it's almost 4-1 positive gainers to negative fear today. lots of new highs today. are there opportunities? we'll get right to that with our crew today. mr. jim seymour, nice to see you.
danielle hughes. let's talk about this market here today. i'll start with a for ambassador. do you think this thing is sustainable? we're up eight of nine days. do you like it? >> the people on the sidelines with the anxiety are getting good data. industrial production joining with yesterday's retail sales. you have the signs that tell you there's some beginnings of real demeant. i don't think the people expecting a big pull-back are going to get that. >> interesting choice of words. needing to get in. that puts some pressure on those that need or want to get out. >> we're seeing probably a little performance anxiety going on. a lot of people have been anticipating a pullback for a while, haven't been getting it.
eventu eventually, you have to recognize you were wrong. we're also seeing it broaden out into real names. i think that speaks to its strength. >> i'm hearing from some of the hedge fund guys that people are still keeping those positions. they're racing for the inevitable which may exacerbate a sell-off. >> i'm one of those shorts as well. i have some of my short positions on, but the fact is, the big movers have been big cat names. and now, we're seeing not just money come into those names, but some laggards follow through. a lot of the money managers are not just looking at the big names. the truth is that once they're heard, they believe that maybe this is really, that's the
minute the market will put out from under us. >> and you can't not look at the fact that the stock is the best performer today, this week, this month. >> much like the script you mentioned, technology led us like we would have expected. the first to cool off as the s&p continued to climb higher and with support from 1024 and the s&p now up to 1040, it's a bullish forecast. then in europe and all of a sudden, the s&p looks strong here. i'm not surprised the blue chips are performing well here. >> of course, some are putting on a little protection and ge i've noticed, there was some active put buying yesterday and today that suggests it's showing more strength. >> let's talk about gold. there is gold in them thar
hills. 1033, in that neighborhood. we are at the same time seeing the dollar swoon to its lowest level since 2008. do you chase gold here, tim seymour? >> i think you have gold by the portfoli portfolios. it's down 3% on the month and doesn't show any signs of improving not only because the rest of the world is showing better growth than we're showing here. you're seeing people reach out for risks and that's going into places like brazil, china and russia. i think gold will continue to track here. i don't think you need to chase it. i do think you need to own it. >> is this something you would buy in on a dip or just look to ride the momentum? >> you could wait for a dip and it actually came off its highs today. the gold bugs we trade with are
playing it. they believe we'll probably break out and it goes back to currencies. china has to protect against all the dollars it has. they have to buy gold to protect. >> let's talk about the stock that good hedge. mpl amazon stock one of the best restormers to the s&p. stock up 6.5% right now. this is one of those plays where do you want to buy the common, look at the options? tell us why. >> you should always be looking to trade in the options markets if you want to make a directional bet or even if you don't think it will do anything. one of the things we certainly are seeing a lot of activity in the options. that shouldn't be surprising. one thing we have also been noticing, as volatility has come up it's made it more attractive to buy downsize protection. >> do you look at the big
picture here, positive industrial numbers here today. if you are buying a retailer, amazon or even ebay or something more mainstream like a nordstrom or macy's, whatever, you're making a call on the consumer. are you that confident the consumer is ready to go right now? even visa said we may not see an uptick in consumer spending until at least next year. >> i don't see any interest in that sector myself personally. i don't see the consumer back just yet. i think the economy and the market themselves are in completely different directions and for the reasons that you're seeing a forward forecast by the s&p or the dow in particular, they're pretty bullish through the year 2010. i'm not surprised there. i'd be wrong that retailers would probably do well in that scenario, i just don't see it. i think volume will dictate in these actual contracts and actual shares if we see this break-out happen. but i see other sectors right now that are a lot more attractive. >> the price of oil, inventory,
breaking it down, pushing higher. now above $71 a barrel. for more on the trade, we bring in the liquidator who is on the fast line. joe? >> good afternoon. >> is this temporary? there still is a lot of inventory out there. >> yeah, there is fundamentally a lot of inventory in oil right now. let's face it, opec's compliance is not that good. they clearly cheat. i'm actually rather surprised oil is not much higher than it actually is. we're not above $72 yet and given that all asset prices are performing so well right now, we have a very strong tape across the board, a weak dollar. i'm a little suspicious of oil that it is not higher. i think the better trades right now in the commodities space are more about gold or about natural gas. >> i mean the fundamental story here again is going to be a play not only on the currencies but ultimately on the big u.s. consumer. don't we have enough on our backs already really? >> well, the consumer trade in the oil space is about heating oil and it is about reformulated
gasoline. both of those markets today after the inventory report have moved higher. so that relatively dismisses the bearish premise for the entire energy space based on the consumer not participating. but again, matt, i think right now the entire market is a chase for performance, people want the exposure to energy. would energy be one of the number one commodities right now? no, i'd own gold ahead of it and and maybe even natural gas ahead of it. but energy will participate in the broad tape stays strong. >> thank you very much, joe. appreciate it. mplts let's get into our "fast and furious segment" here as we head into the close here today. the steel company of one of the wealthiest men in the world here today is higher. company seeing demand grow at 3% to 5%. chinese growth up 15%. do you buy mt, mr. ambassador? >> i think steel prices, people have made too much noise about a
little pull-back in china in terms of prices in the last week. you're buying the biggest steel company in the world with the biggest balance sheet which means they're talking about gearing down, it is an improving balance sheet story. that's why you're buying here. but steel demand not overly robust but improving and china leading the way. >> talk about palm. the stock is higher ahead of its earnings tomorrow. do you buy it here? this is the new darling in the tech space. >> i don't think i would. the options markets aren't really liking it thatch. most of the options order flow we're seeing is bearish. one of the reasons might be despite the fact that pre and the newer products seem fairly attractive, they're still tethered to sprint. they had some pricing issues last week. they weren't really sorted on what they'd charge for these things. i'd probably stay away. >> on tonight's "fast money" with melissa, don't miss our interview with one of the few
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here today. folks, we're up 8 of 9 days. will we finish higher here today? >> manageable market. don't fear it. don't fight it. >> wow. extra points for succinctness. that's going to be hard to beat. >> you can hang on to your positions. >> we going to see some profit-taking in the final hour? >> you have to protect yourself. but i think until september 30 you buy, yeah. >> the last word, mike. what do you say? >> i really like the pork below the market. i'm wholish. >> what are you watching next hour? we believe this news conference is going to take place right now. let's go to it. here's the senator. >> millions of americans to date simply cannot afford quality health insurance. in fact, in the past day,
another 17,000 people lost coverage. more small businesses cut benefits because they are simply too expensive, and more americans filed for bankruptcy because of high medical bills. that's why it's time to act, and that's why this is our moment in history. this is our chance to reform health care in america. we cannot let this opportunity pass. last week, president obama laid out what he believes are the key criteria for reform. it should provide more security and stability for those with health insurance today. it should expand coverage to those who don't. it should slow the growth of health care costs. and it should keep insurance companies honest. the chairman's mark i'm
releasing today relates to these critical reforms. it delivers on the vision for a meaningful health care reform and i share with president obama and millions of americans of all stripes that goal. it meets the criteria laid out by president obama and it could achieve our common goals for health care reform. it reflects months of work, and more than a year of preparation by our committee. it represents an effort to reach common ground and a real chance for health care reform. and it is balanced, a common sense bill that can pass the senate. achieving real reform means that we need to hold insurance industry accountable, and that's why we're presenting this package, and that's exactly what this package does. it provides competition, holds insurance companies accountable, and ensures americans have real
choices when they buy insurance. it ensures choice and competition in the health insurance market so every american can find quality, affordable coverage that cannot be taken away. it protects those with pre-existing conditions. very important. it prevents insurance companies from discriminating and capping coverage, and it requires insurance companies to sell and renew a policy to anyone who applies so long as the policy holder pays their premium in full. our package makes clear that if you like your doctor or health plan today, you can keep them. it delivers affordable coverage to tens of millions of americans and reduces costs and expands options for millions more. it increases the focus on prevention and wellness, begins to shift the focus of our health care delivery system toward quality of care provided, not quantity of services provided. it protects medicare and makes
the medicare program stronger to ensure future generations can benefit. for seniors, it lowers prescription drug costs dramatically, for small business it establishes a new marketplace to shop for coverage and tax credits to help make benefits affordable again. in fact, the congressional budget office estimates that our reforms will significantly reduce costs for individuals and group markets. for the uninsured, our package guarantees immediate access to quality, affordable coverage. it is fiscally responsible. it reduces the deficit within ten years, and it controls health care spending in the long run. we have done everything imaginable to get the most generous, most affordable coverage that we could within president obama's target of $900 billion. there are honest and principled
differences among all of us working for reform, and this package may not represent all of our first choices. but at the end of the day, we all share a common purpose, that is to make the lives of americans better tomorrow than they are today. and to get health care reform done, which means the time to come for action is now, and we will act. we will act and pass health reform legislation this year. next week the finance committee will do its part to help expand coverage. we will do our part to control costs. and we will do our part to work closely with president obama to deliver health care reform to the american people. i look forward to the efforts of my colleagues on the committee to make this an even better bill. i also look forward to working with leader reid and chairman harkin and dodd and the rest of my colleagues on the health committee so we can merge quickly our bills with theirs. this is a good bill.
this is a balanced bill. it can pass the senate. i look forward to making sure that we have an even better bill that passes with even a larger margin. thank you. >> all right. we welcome you to the second hour of "power lunch." you heard it live right here on cnbc. john harwood joins us to kind of handicap the chances of this particular bill getting through. john, there are dethree effecters of the gang of six right now. grassley, ensign and snowe. all the republicans. >> i think you've got a process of working through the committee. i wouldn't be at all surprised to see olympia snowe amend the bill in committee to add that triggered public option which she has proposed in the past. that might be enough to get her vote. but we're not sure. >> there's no public option now. >> that is correct. >> shouldn't we be happy with that?
>> well, no. but she, she likes the triggered public option. she just -- she doesn't want a full, immediate public option but she likes the idea of a trigger. she proposed that. different republicans have different views. some of them don't want the co-ops, they don't want the public option at all. olympia snowe's not in that category. that's why she's a gettable vote for them potentially. they don't need her vote to get it out of committee. they can get to the floor, but they want her vote and need it on the floor if they're going to get over a filibuster. >> when he says it can pass the senate, is he assuming olympia snowe comes around? >> i think they're hoping that's the case. the white house is certainly hoping that's the case. they also have to deal with some democrats who are a little bit ticked off. the whole dynamic in this committee all year has been max baucus working with chuck grassley trying to come to a deal. it is obvious that in any broad sense, that is not happening and so you see grassley and enzi coming off the bill, republican leadership is against it, vast
majority of republicans do. now democrats are saying, wait a minute, you've been negotiating with them, not us. what about the level of subsidies we want, what about the public option we want. baucus has got to navigate that. you have the white house in the background saying "just pass something." i think that's likely to happen in the end. >> handicap it -- you just kind of answered my question. are we indeed looking at piece of legislation that you think eventually will pass? is this it? >> i think this is the foundation of what will eventually pass. i do not think it is going to go through unchanged. i think you may see something on the triggered option or some other steps to accommodate olympia snowe. they would really like to get her vote in committee. but we'll see what happens. it is not going to pass in the form it was laid down today but i think something very close will pass. >> john, assuming that will no, or very, very, very few republican votes here, how does that play out to the broader american public that a health care bill passed in such a way?
>> i think it would be better from the standpoint of the white house if it were bipartisan. there is some sort of reputational value, you lose from the fact that it is not bipartisan. but the balancing act the white house has been striking, steve, all year, is the biggest reputational risk for the democrats and governance risk is not doing anything. so since they find the bridges -- the differences too far to bridge, they want to move forward with democrats as the alternative to doing nothing, because they all remember how that worked out for bill clinton in 1994. >> john, thank you very much. we have more breaking news this hour. this time on the housing market. diana olick has details also from washington. >> that's right, sue. it is now officially a trend. home builder sentiment edged higher for the third consecutive month in september. it's just one point up higher but at least that's in the right direction. take a look at numbers. confidence index stands at 19 up from the record low of 8 in january. please remember this particular index draws the line between positive and negative at 50 so we still have a ways to go.
buyer traffic, current sales and sales expectations, 2 out of 3 recorded gains. but sales expectations fell due to the looming expiration of the first-time home buyer tax credit. the window is now basically closed for being able to start a new home that can be completed in time for buyers to take advantage of the tax credit. regionally the confidence index went up the highest in the midwest and went up the smallest in the west. for more on this, go to realtycheck.cnbc.com. david crow, pleasure to have you with us. i take it you are encouraged by the results. how worried are you about that dip in expectations with the expiration of the tax credit? >> that's exactly the component to focus on. we are very encouraged by the fact that the index continues to increase from a dismal low of 8 at the first of the year.
but we've been looking all along at the potential for this slacking off once the credit expires. as diana explained, it is too late now to start a home and expect to be able to sell that to a first-time home buyer with the credit. so any increase from now forward is general increase in the entire marketplace, and that one-point drop in the expectation is the first indication that our members are seeing -- we got to be a little careful here -- that was a great summer with the credit, but now we're entering -- >> sir, critics of the subsidy on housing say that it's given to people who are going to buy a house anyway. how do you counter that? >> well, they may have bought a house at some point, but they might not have bought a house in this period. the whole strategy behind the credit was to bring them forward, bring them out of their doldrums, if you will, and push them out in the marketplace. perhaps they would have bought
next year. but the point is we need them to buy this year to get this market moving and to get the rest of the economy moving. because building houses creates jobs abc well. >> when we look at the new home market and the existing home market, the national association of realtors tells us one-third of all home buyers -- new and existing -- took advantage of that first-time home buyer tax credit over the summer and that is a much higher percentage than is normally the first time home buyer in the market. we are seeing a push from that credit. >> david, you want to extend it for how long? >> we're asking the congress from another year, year from the date of its current expiration, end of november. >> wouldn't you argue though there is already substantial tax relief or tax incentive in the current tax system? i know michelle agrees. >> renters are already abused by the current tax system. >> well, there are incentives to own, but there aren't incentives to buy. that's what -- we need the market to move forward. >> what's the difference? >> there are incentives to own, but there aren't incentives to
move now, to buy right now. that's what the credit does. the credit moves that demand to a point where we can get the ball rolling, get steam into the marketplace, and people out into the market. >> i can ask quickly our real estate expert, diana, do you think that the current market is going to really collapse or otherwise be really lackluster without the tax credit? >> i think it is going to take a hit, for sure. we are seeing a large number of people who hurried in over the summer to take advantage of that tax credit. also seasonally, we're moving into a much slower season of home buying that is norm lir the busy spring season. what's more important is look at mortgage rates and make sure we continue to see mortgage rates low. if they start to come up after perhaps the government stops buying mortgage-backed securities -- because they're only scheduled to buy them through the end of the year, that will probably get extended. but if it doesn't and mortgage rates go up, that's a much bigger hit than the expiration of the home buyer tax credit.
quick break. when we come back, charlie gasparino will join us with the latest on where two former merrill executives might end up. you get punished for buying a $35,000 commode? can you ever get a job anywhere else? we'll find out. one year ago today, this is very important anniversary. the reserves primary fund stunned investors. they broke the buck. dramatic ripple effect. probably one of the most important things that happened during the crisis. the inside story of what was going on behind the scenes in the middle of the meltdown with james stuart. i drove my first car from my parent's home
in the north of england to my new job at the refinery in the south. i'll never forget. it used one tank of petrol and i had to refill it twice with oil. a new car today has 95% lower emissions than in 1970. exxonmobil is working to improve cars, liners of tires, plastics which are lighter and advanced hydrogen technologies that could increase fuel efficiency by up to 80%.
attorney general andrew cuomo's investigation of the bank of america/merrill lynch merger. you saw these flashes on your screen before the break. we can give you some more information now. according to a source close to the investigation, the attorney general is now subpoenaing members of the board, at least the previous board of bank of america demanding testimony under oath about what they knew about mounting losses at merrill lynch and about the bonuses that were to be paid to merrill lynch executives ahead of the merger. they're seeking testimony under oath and they're seeking it post haste as this investigation continues. it is a fairly extraordinary step. the source says that the attorney general's office believes that the board members were briefed on the growing losses and potentially on the bonuses in early december and late december as this deal was closing. this source also notes that this
is independent of the threat that we heard about earlier where the attorney general's office is weighing charges against bank of america executives in connection with all of this. that is still being considered and this is independent of that, but would presumably help the attorney general's office gather more evidence as they continue their investigation. this continues to develop and we're continuing to be on top of it. back to you. two former merrill lynch leaders are surfacing. john feign and robert mccann. are they about to get new jobs? charlie gasparino, author of "the sell-out" which comes out in november joins us. charlie, start with thain. he's got a new gig. >> i think i flushed his wall street gig down the commode. i couldn't help myself. i think it is pretty clear that his wall street -- when we say
wall street, bank, firm, he's not going to land there. he knows that from what sources tell cnbc. what do you do now? talking to what i hear, people close to him saying he's talking about private opportunities and he's talking about private equity mainly, maybe being on the board of a firm or fund. his wall street career, at least this is what i hear from people close to thain, is in all likelihood over. gone with the commode. >> in this country you can re-invent yourself so many ways. >> you're right. but i think as of right now -- you never say never, but i think this is a realization from inside his camp that the wall street rout, at least for now, is cut off. mccann is fashion natucinating. he's in court right now trying to get out of this contract with bank of america. he ran the brokerage network at merrill lynch, left amid that merger that we just keep talking
about. there's always another story coming out about this merger. b of a apparently is stopping him from taking another job. that other job, if he gets out of the b of a situation, this is bob mccann right now. i'm sorry. if he gets out of the b of a situation, this job will likely -- this could change, too, just like the thain thing could change -- likely be running the ubs wealth management unit. if that happens that will be very interesting. i know mccann wants to go back to the old paine webber name i think back in 2000. bought it for -- it was an amazing deal. a $40 stock, he sold it for $70 a share. maybe one of the best financial services deal for shareholders at the time. i don't know if ubs did so well. they've never built on that brand. i think if mccann goes there, there is a good chance he's going to change the name. one point i want to make about this cuomo investigation which i'm very dubious about the bonus
stuff. but here's where the rubber meets the road. if he can establish that the board knew about the size of the bonuses -- excuse me, the size of the losses at some point somewhat early, and then did not disclose -- >> disclose to shareholders, you mean. >> right. those bonuses become to me -- those bonuses become very relevant, and really material if you know the size of the loss. >> even without the bonuses. you failed to disclose to your shareholders all this information? i think even without the bonuses -- >> without the losses, you mean. >> yeah. >> right. >> no, without the bonuses. >> just think about it. if you know without losses, you know -- >> right! you got to disclose them! >> then on top of that, you got $4 billion of bonuses, it makes the situation toxic for them. i'll be honest with you, i know we keep saying this, how does
ken lewis survive this? >> we ask that question every day zpp go day. >> good luck with the book, by the way. >> where's the cover? up next, is private equity on the comeback trail? we'll go live to a big conference in manhattan where rebecca jarvis is standing by with a major player in the pe world. 52-week highs. more coming your way. goldman sachs, apple, google and ebay all at new 52-week highs with the dow jones industrial average up more than 102 points on the trading session, 9785. we are first in business worldwide. and we are back in a moment.
dow jones industrial average, triple-digit gain there for one brief moment, a gain of 1% high now of 9781. show you how much optimism there is out there, our staff department sent out an e-mail about the last time we hit dow 10,000. woo-hoo! we'll see. >> what year was it if. >> oh, please. let's just get on with the rest of the day. one year on from the financial crisis, the biggest power players in private equity are meeting today in new york. our rebecca jarvis is there mingling with the titans of wall street and she joins us with a special guest. hi, rebecca. >> hi, sue. a very special guest. george ackert, senior managing director at evercors. you formed the group at merrill lynch, you formed the group at
ever core. are we really on the verge of growth in the field? a lot of folks at this conference seem to think so. >> for sure. first of all, there are going to be good deals out there. valuations are low. financing's hard to get. but if you can get the financing, if you can get a deal done with the valuation so low, investors should do very well. vintage 2009, 2010, 2011 deals. i think there is a lot of excitement. >> valuations are very low right now. finance something a big component of this. you're dealing in infrastructure and transport where the stimulus is a big portion of your business and of the business being generated for you. how do you see that playing out? are the dollars trickling out? who's using it and who's using it best right now? >> sure. well, the stimulus really affects infrastructure. not transportation. i'll just talk about infrastructure. basically it is a use it or lose it paradigm. billions of dollars are up for grabs. it takes a project that might have been sitting on shelf for
2010, or 2011 and incents those governments to do something today. in new york, for example. there's hundreds of millions of dollars of projects that are all competing with each other for the $2 billion or so that new york is going to get. what will happen is that those projects will be be started and the construction jobs will start sooner as opposed to later, and that will have the effect that obama wants which is to prime the pump with the additional funds. >> we have them asking for our attention here in the wall discove discover. i know you guys in studio have caught on to the attention of this conference and have some questions. let's make sure we get you in. >> i appreciate it very much. basically i'd really love to know whether or not the deal making environment in private equity has improved dramatically from where it was a year ago or so. we hear a lot about deals being done but what about the structure of those deals? are they still decidedly different than they were a year
ago? and do you see the deal making environment improving dramatically as the credit markets start to loosen up? >> well, your first point is a good one, which is the question on complexity. transactions are less complex. the credit markets are applying a complexity discount to everything right now and what they're demanding are much more plain, vanilla transaction structures which means you won't see some of the complicated structures you saw even a year ago. yes, things are thawing, but the real trick is to get the credit markets moving. there is a pent-up demand of a year of transactions not happening. we do think we'll see a bounce-back and we hope it is the end of this year, beginning of next year. >> how much involves work-outs of old companies? you don't really get to the new deals because there are very good deals in existing companies
that are going through or are at or near bankruptcy. >> you're exactly right. the action has been working out some of the former great companies that have been falling on hard times and that is the focus right now. because the transactions have to happen. so unlike in the private equity conference, a private equity firm typically does not have to sell a company. but if you have a large company that's having trouble, and it's either the company goes out of existence or a part of it is just sold, you have that immediacy and that urgency. now that the credit markets are coming back and now that some of those emergency deals are dwindling a little bit, we're going to turn our attention to the regular way deals of private equity firms and others that want to sell. >> the point steve brings us is a very interesting one, it's something we've been talking about here at the conference. the fact of the matter is a lot of these portfolio companies that private equity firms own happen to be coming due on their debts in 2012, 2013.
seem to be like big years. we actually heard from garrett moran of blackstone group we might see a slew of eipos. they may seem very cheap compared to the average investor. >> that's a great point. we are seeing some eye poes that are going to basically net zero to the financial sponsor. but, when the eipo is done and markets return, the financial sponsors will get their return then later on. >> financial sponsors may not make money but investors, your average retail investor per chance may have a great opportunity to get in at kind of a fire sale price. >> i agree that. i think it is a win-win. i think private equity firms will make their money and i think retail investors have their shot to make their money as well. >> thanks so much for being with us. coming up -- good as gold?
the metal is above $1,000 an ounce. decidedly so. that's happening in the midst of a bull run for stocks. should you buy gold or have you missed the run? plus a key republican senator weighs in on the new democratic health care plan. plus, james stuart with amazing details you've never heard before on what was happening behind closed doors during the big meltdown last september. "power lunch" is back in two minutes.
dow jones industrial average up triple digits. a gain of more than 1%. 9784. nasdaq higher by 26 points, gain of more than 1%. ditto for the s&p 500 which is up 14 points. gold higher by $14, $1020. gain of more than 1%. just let hand a half-hour ago, senator max baucus can be the chairman of the senate finance committee unveiled his version after health care reform bill. joining us with reaction first on cnbc, wyoming senator john
buroso. you're also a doctor. senator baucus says this version can pass the senate. do you agree and are you going to support it? >> i don't plan to support it. i know that even the democrats are arguing among themselves about it. i think jay rockefeller came out against it. this thing, unfortunately, turned out to be too rushed. i think it is much more important to get it right than rush through the process. they've had this gang of six with the three republican senators as part of the negotiations. but the president said we have a deadline, i want it out by september 16th and they just didn't get a chance to get all the input. >> what would you change? what would allow to you support this particular measure. >> i want to make sure there's actually nothing added to the deficit. that's what the president said and i want to know how you'll really pay for it. there is a lot of trickery and gimmicks where they prefund it, collect taxes for ten years but they only give services for
four -- for six as a way to try to get down the cost. i think people ought to be able to buy insurance across state lines to shop around, to have more opportunities. individuals who buy their own insurance ought to be able to have the same tax breaks as companies. other thing is there is really only still lip service to lawsuit abuse. you look at this, senator baucus includes just a little bit. details are still very sketchy. he said a couple of pilot projects. well, they have one. look at texas where they have tort reform there. it lowered the amount of defensive medicine practice, all these unnecessary tests. >> senator, one of the things that frustrates me in this discussion is when you listen to republican policy think tanks, they really want to dismantle employer-based health care because they think that's where a lot of the problems come from, you don't have a big enough market for private insurance. that's why there's a lot of junky insurance out there for private individuals. but when it comes to the republican policymakers, nobody
wants to go that route. they're afraid to talk about it. why? >> there are about 30 different republican proposals out there. some proposals do call for that. it is allowing people to own their own insurance, portability, take it with them. my kids may have five, six, seven jobs over the course of their career, so the thing that's best for them is if they own their own insurance, just like they'll own their own car insurance, so that when they move or change jobs they're not really held hostage by a job and own their own insurance but get same tax benefits that the companies do. >> what are the politics of a health care bill passing without any republican support? there was another major social reform in this country. go back to the '30s and i think it was social security that passed without very much republican support. is there a downside for republicans or is there only upside by standing against this? >> i think what we need to do is reform health care for all americans but this touches everybody personally. it is one-sixth of our entire economy. everyone has a story. yes, i practiced medicine for 25
years as an orthopedic surgeon but my wife bobbi is a breast cancer survivor, she's been through three operations, a couple of bouts of chemotherapy. we've seen it from all different sides. we need to do something to reform health care to get costs under control for all americans. do we need to do something? absolutely. when you're talking about this part of the economy, this large, i think the best way to get the country to believe in it is to have a bipartisan approach that 70 or 80 senators would support. we don't have that right now. >> senator, thank you for your time. let's talk more about gold. gold hitting an 18-month high today, within a hair's breath of an all-time high.
let's talk about if you think there is inflation in the way, is it a good hedge. the principal and managing director of investment strategies at the rex capital group, jonathan, good to see you again. what do you do here? >> i think there's room to run here. even within our little grouch commodities, gold only being up 15% or so year to date is actually a lager in the group. even though it is "the" marquee commodity we talk about. i don't know whether we'll get much more this year but in the long-term it certainly looks like it has a lot of room to run. the only caveat i'd say is strength of dollar. you get any sort of strength in a dollar, the air can come out of that gold trade pretty quickly. >> jon, how do you feel when you look at the long bond or ten-year, 340, and say those guys aren't worried about inflation. but over here everybody's nuts about inflation, $1,000-plus.
>> somebody's got to be right and someone's got to be wrong there. this is not what they taught us in micro-101. something's got to give. i want to say that because of all these investments in the asset class modty that just seems to strengthen, upwards of $200 billion this year, a lot of those in-flows are pushing prices higher from a diversification aspect alone. i think there is a lot of cushion there. >> jonathan, thanks a million. see you soon. still ahead, i'm looking forward to the stunning inside details on what the biggest guns in the financial world were saying behind closed doors a year ago this week. also, we have a triple-digit gain in the dow jones industrial average and we have some more of those 52-week highs. right now motorola, ciena, western digital, motorola just
forced to sell a huge jewel in the crown. if you have not read this article, this is the magazine article everybody in our next of the woods is talking about. it is a great read. it is the behind the scenes story of those dramatic eight days that shook wall street and the entire country last year. first on cnbc, "the new yorker's" james stewart on what really happened when the biggest players tried to save the financial system. welcome back, james. i got to tell you, this is a terrific article but it made the hair on the back of my next stand up. you got access to people and quotes from people that -- and got information from people that we did not know about and we knew a lot about what was going on this time last year. but after reading the article, it seems that it was much worse than even the worst case scenarios that everybody was putting forward. >> absolutely. i mean both then-treasury
secretary hank paulson and federal reserve chairman ben bernanke told me that the failure of lehman was so much worse than they expected and they already expected it to be bad. they never thought it was going to be good. but it was a disaster. what unfolded over that following week is terrifying because we did come so close to the abyss. look, they deserve some blame i think for the fact that we got to that brink, but they deserve huge credit for getting us back to that -- you look at the stock market today, you're rightly saying it's been an incredible rally. well, we have them to thank for that we did not go over the edge of that cliff. >> you know hank paulson is a pretty frank man and does not exaggerate. we pulled a number of quotes from your article. this one struck us on the precipice saying, "nothing is breaking our way, we need to think of tomorrow, we need to get ahead of this, it's deepening, moving too quickly, it is the financial equivalent
of war, and we're going to need war time powers." >> pretty dramatic. headline news was he got the $700 billion t.a.r.p. legislation underway. one thing i found so amazing. they were lurching from crisis to crisis, not getting any sleep. that $700 billion number paulson just plucked out of thin air. had he a vague idea that the world market in mortgage assets was $1.4 trillion, he just said let's take half of that. but less known is somebody said let's guarantee money market funds. we have to stop the run on the money-market funds. that was a $4 trillion market. he slams his hat on the desk and says, okay, we're going to guarantee the money market funds. people didn't stop to realize that was a $4 trillion guarantee. that was really rolling the dollars. >> jim, it comes from something that i noticed over time. i wonder when your behind-the-scenes access revealed about this. the extent to which our financial leaders and regulators
really understood the financial markets that they regulated. that's one question i have for you. other one is, what did you learn about what happened between bear stearns and lehman and why something more concrete about how to deal with a lehman wasn't established. i'm interested in this, when flowers was leaving, he tournd paulson, by the way, have you been watching aig? what's wrong at aig, paulson asks. >> those are both great questions. one, did regulators really know what was going on. the answer is no. nobody knew what was going on at aig. it turned out who would have guessed, aig was kind of regulated by the office of thrift supervision. when fed and treasury official called on this, what's going on in the aig financial products, the t.h.r.i.f.t. people didn't know anything about it. they knew it was some small, embedded -- they were stunned
bit aig development. >> i don't have a question for you glu are two quotes that i love so much in this. the control room can bring up 1358. don't call anyone. is geithner. geithner got a call from a financial titan who said he was worried but doing fine. his voice was kwaverring. after hanging up, geithner immediately called the man back, don't call anyone else he said. if anyone hears your voice you're going to scare the "bleep" out of them. i love that. the other was. "toughen up." one guy says, i don't think i can take another day of this. a goldman banker tells him. he says, come on, you're getting out after mercedes to go to the new york fed, you're not getting out of a higgins boat on omaha beach. >> the drama was just great. to your second question, what happened between bear and why did lehman fail, that one thing i was most puzzled about when i started. you see in the story they did try to save lehman brothers, to
a point. i think a treasury official says, it is so important, part of us wanted the thing to fail. the political backlash against bear stearns -- you have my report in there, jim. there were reports in the morning that paulson was not going to put money -- that was something we broke here on cnbc. >> steve broke it. >> steve broke it. >> good for you. that had such an important role to play in the whole thing. that was staking out a line. of course they now say that they would have done something. would they really? i don't know. we'll never know without the benefit of hindsight. 10% of them wanted lehman to go under. the lesson was so bad. no matter what obama's saying now, we know now we cannot let an institution like this go under again. we've got to get the authority from congress to have a federal regulators wind these things up in an orderly way, keeping them in business. >> in an orderly way. they can go out of business -- >> i have to say when i was in
jackson hole, everybody at the fed came up to me and said the most important thing of all is resolution authority. resolution authority. >> being able to do it. >> that's what they say they need in order to prevent the next one from going down. >> it is shocking. senator shelby just recently -- i believe again on cnbc said, i don't think anybody's too big to fail. just let them go down and let the market rediscipline them. market probably would correct itself after maybe we've all gone back to the iron age. >> thank you. it takes you right back to how darn scared we all were a year ago and you did a terrific job. great read. thanks for joining us today. more breaking news on citi more breaking news on citi group right after the break. xwxwxwxwxwxwxwxwxwxwxwxwxwxwxwxb
speech. during the speech he's told attendees they shouldn't think of citi holdings as a bad bank because some of those assets within citi holdings just aren't strategic to the company. those holdings include smith barney which he said will be sold to morgan stanley over time. the two struck a joint venture on that retail brokerage arm in june. again saying they will divest the smith barney unit over time. this was the intention when they split citi corp. and the citi holdings. those assets in citi holdings not expected to be strategic to citi corp. which is the future of the bank. also pandit making comments about the repayment of t.a.r.p. saying the bank hopes to repay t.a.r.p. once they see a couple more quarters of stability in the market. stay tuned. "power lunch" is back after this break.
9,777 on the dow. facebook hits a new milestone. it is now cash flow positive, has 300 million users. certainly the population in the united states. why's facebook getting it right, but not myspace? what is happening here? why is facebook doing so well and myspace just can't seem to get any traction? >> it's sort of a tale of two cities. myspace one might argue had its day, didn't capitalize on it. made a few bad decisions. people moved on. facebook is riding the wave right now. it always remains to be seen whether that will happen. ten years ago at this time king of the world was aol. right? >> that's true. what's facebook do right? >> a number of things. they make it relatively frictionless to keep in touch with people. they make it easy to share media. they make it kind of easy to avoid and ignore things that you don't want to be bothered with and they don't allow to you customize so much that you're
inundated with sort of crazy home pages of other people. >> how soon before they actually really are positive? when you look at cash flow positive, i'm reminded of the dotcom days when we put all those other metrics such as eyeballs to value. >> facebook has at least for one quarter achieved the milestone of actually taking in more than it spent, which by its own reckoning is more than a year ahead of schedule. that's very good. they say they're -- they haven't done that with the money that they've taken in from investors. they're doing it on an operating basis, they imply. of course it is a private company. we have really no idea what's going on there. they won't say anything more than what they've already said. >> can that business model then be adapted by other companies in that space, and have it be equally as successful, do you think? >> oh, sure. it is a micropayment in advertising and sponsorship kind of thing where, for the users, the experience